The dollar opens the month with a tick higher as baskets of Federal Reserve policy makers teases the market with better and boosted expectations of interest rate increase coming this March, hours earlier before President Donald Trump most anticipated speech. The greenback also recovered several losses yesterday as investors prepare as early as Tuesday for the congress speech.
According to the North American head of foreign exchange strategy at TD Securities in Toronto, Mark McCormick, “I think it’s a mix of profit-taking ahead of Trump, and also you have month-end rebalancing flows. Those I think are the dominant drivers.”
McCormick also mentioned how the markets began scrambling to shift ships as they grow a tad cautious from the pressure the new administration possess. Currently, the US currency rose as much as 0.3% to 113.16 yen while slightly decreasing against euro with a slight 0.1% at $1.0565, but recovering some grounds at midday Asian market trading.
The greenback has been recently on a losing streak against its tougher competitor the yen, the battle between the two is highly regarded as the closest relation with the US bond yields. This means that lower Treasury yields make up for a better and stronger Japanese currency boosting its way
According to Wells Fargo New York’s currency analyst Erick Nelson, “The 10-year Treasury yield, which is just down very slightly today, probably supports the yen, at least in the near-term." He also mentioned that the current yen and dollar fray is a larger
Although Koji Fukaya, the President of FPG Securities in Tokyo notions that "There are two key factors investors will look out for in Trump's speech: fiscal stimulus and tax reform," and that "The dollar would strengthen if Trump mentions both in detail. If he touches only the tax reform, the range would stay the same. The markets would be disappointed if he does not elaborate on either of the agendas, and the dollar could weaken below 111 yen,"
Investors Hopeful of Fed’s Decision
Every investor is jumping aboard the dollar train, as the greenback index’s monthly results show gains of around 1.6 percent, even after being down the past days at 0.03 percent at 101.10. Investors now await for the Federal Reserve to announce the exact date of the next interest rates as an abundance of the Fed’s officials’ speeches this week, culminating in an address Fed Chair Janet Yellen this coming Friday.
According to several Fed President William Dudley of New York when it comes to tightening monetary policy "has become a lot more compelling". Dudley joins the pool of what the market considers as the most influential US central bankers.
In another statement from San Francisco Fed’s President John Williams; the rate increase is a very hot topic in March and is taken seriously as looming meeting suggest the economy at full employment and accelerating inflation.
Although some investors are still heedful of the possibility that President Trump may vaguely disappoint those who seek greater detail on the coming tax code reform as he is predominantly occupied with domestic issues.
The dollar sits on a 14-year high rally ever since President Donald Trump won the US election, steered by greater and larger fiscal stimulus and reflationary plans. But a minor step back was rehashed last January as a slowly moving reform on the specifics of tax hits the market. The US economic growth shows the moderate expansion and growth under Trump’s administration, coupled with the fourth quarter sluggish growth in line with last month’s estimate. A silver lining of all of this is the sharp increase in consumer spending at a 3.0% rate in the fourth quarter; consumer spending is accounted for more than two-thirds of the country’s economic activity.
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